Sustainabilchemy (pt. 2)

Part 2 - The Wool Over Your Eyes

“It is only prudent never to place complete confidence in that by which we have even once been deceived.” - René Descartes

Looks can be deceiving.  As we noted in Part 1, BP had $2 billion+ of environmental remediation and toxic tort liabilities on its balance sheet brewing under the warm and fuzzy “Beyond Petroleum” commercials before the Deepwater Horizon incident.  Converting the world to 100% wind, solar, EV’s and utility-scale battery storage sounds great until one analyzes what would be required in terms of metals mining.

Sometimes “greenwashing” is more blatant. Burning US and Canadian forests in the Drax UK power generation complex and calling it “renewable energy” is not so easy for the UK, EU and United Nations (UN) to hide.

I Scream You Scream

In fall 2015, the UN Framework Convention on Climate Change (UNFCC) annual Conference of the Parties (COP) that birthed the “Paris Agreement” (COP21, Paris, December 2015) was excitedly hyped. Ben & Jerry’s parent corporation Unilever sponsored a quite clever hidden camera trick on social media in support of the upcoming event.

New workers arrive for their first day at an office. The thermostat is turned up to over 90 degrees.  The “workers” (actors, but for one actual unsuspecting new employee on whom the trick is being played) increasingly gripe about the unbearably hot temperature of the office.  The actors get the “newbie” to ask the boss to do something about it.  The boss (missing only a Koch Brothers t-shirt) questions whether the thermostat is accurate and whether it’s really that hot in the office. Our words cannot do the video justice, so we include it below:

The money shot comes as one of the actors resigns at the video’s dramatic climax:

“There’s a problem that’s happening that affects every one of us. We have the information that it’s getting hotter every day. All of us feel it getting hotter every day and no one’s doing anything about it. And that’s cuckoo. I don’t accept that”.

Aside from its obvious support for COP21, Unilever’s purpose was to obliquely call out anyone who dares question the UN Intergovernmental Panel on Climate Change (IPCC) science as a “denier”.  

Denigrating a critical tenet of the scientific method – skepticism – for political purposes seems odd for a company whose entire product line relies on the highest form of public trust in science regarding consumer safety. We have seen what happens when science is set aside for ideology. Why would Unilever do this?

Unilever is one of the world’s largest companies, solidly in the top half of the Fortune 500, with annual revenues of over $60 billion globally and a market capitalization of almost $130 billion. The company’s five divisions include many popular brands readers might not even realize they use:

·       Lever 2000, Dove, Lifebuoy, and Seventh Generation (soap, cleaning products)

·       Ben & Jerry’s, Talenti, Hellman’s, Klondike, and Knorr (food products and ice cream)

·       Axe, Vaseline, Degree, Sure, Q-tips, and Noxzema (personal care products)

Unilever is a UK company and at the time of the propaganda video supporting the Paris Agreement its leadership had significant ties to the UN and its objectives. Unilever CEO Paul Polman was also Chairman of the World Business Council for Sustainable Development (WBCSD) from 2012-2017. Louise Fresco, non-executive Chair of Unilever’s Corporate Responsibility Committee, was a former UN Food and Agricultural Network official.

To be clear: We have no issue with corporations advocating for themselves. But gaslighting those who have legitimate questions about a complex scientific topic by likening them to holocaust deniers is another matter.

By 2015 when Unilever sponsored the advertisement, it had additional motives. Since 2008, the company had been in the crosshairs of environmentalists, particularly with regard to destruction of rainforests in Southeast Asia for palm oil plantations.

Unilever is the world’s largest corporate buyer of palm oil. The palm oil supply chain has a highly controversial environmental and social track record. 

Pressure from Greenpeace and other environmental groups over palm oil led Unilever to ramp up its “Sustainability” messaging. In its 2010 Sustainable Living Plan, the company stated three key objectives:

1. We will help more than a billion people take action to improve their health and well-being.

2. We will decouple our growth from our environmental impact, achieving absolute reductions across the product lifecycle. Our goal is to halve the environmental footprint of the making and use of our products.

3. We will enhance the livelihoods of hundreds of thousands of people in our supply chain.

Vast swaths of rainforest – called the “lungs of the earth” for decades by environmentalists  – have been denuded for palm oil plantations, including many that feed into the global supply chain connecting to Unilever.  That same supply chain also feeds EU biodiesel. Numerous sources have documented indigenous people being violently driven out of traditional homelands by government or mercenary forces to clear land for palm oil plantations in Indonesia, Malaysia, and Borneo.

The below screenshot is taken from Unilever’s 2015-2016 Sustainability report (same year as their Paris Agreement propaganda video):

Source: Unilever Sustainability Report 2015-2016

For fifteen years, Unilever has been under pressure by environmentalists to reduce its involvement in the palm oil supply chain in Southeast Asia. Despite taking a leadership role in the Round Table On Sustainable Palm Oil (RSPO) in response to Greenpeace pressure in 2008, the problems haven’t been eliminated.

To be fair, Unilever’s “Sustainability” actions, initiatives and charitable donations have undoubtedly improved the health and wellbeing of millions, particularly in the developing world.  The company’s actions to reduce water use, waste, packaging, CO2 emissions and support smallholder farmers are laudable and significant. We applaud the company for these activities and encourage readers to see the details at Unilever’s Sustainability Reporting Center. But based on the evidence since then, it is reasonable to question whether Unilever’s 2010 “Sustainable Living Plan” was partly a greenwashing reaction. The embarrassing problem Greenpeace and others exposed clearly has not been resolved. 

We highlight Unilever because of their 2015 video denigrating those who question the UN IPCC “settled science”.  But this phenomenon – the paradox between corporate “sustainability” messaging and reality – is hardly unique to Unilever.

Stupid Is as Stupid Does

We can be pretty hard on the regressive progressive environmental left.  But we are equal opportunity critics of bad (even if well-intended) environmental and energy policies regardless of who is responsible.

The 2007 U.S. Energy Bill (introduced as the “Clean Energy Act of 2007”) was passed by a Democrat controlled House of Representatives and a Democrat controlled Senate. The final bill, titled the “Energy Independence and Security Act of 2007” (EISA) was signed into law by Republican President George Bush.

EISA contained three titles. Title I dealt with fuel efficiency standards, incentives for electric vehicles (EVs), and federal vehicle fleets. Title III contained energy efficiency standards for household appliances.  Related to Title III of EISA, if:

• you’re pissed off that your fancy German dishwasher takes almost 3 hours to dry dishes,

• it angers you that your newer home heating and air conditioning systems cannot cool or heat your house to the target thermostat setting on the coldest and hottest days like the old ones, all for meaningless differences in your energy consumption/cost,

• you miss incandescent bulbs over 60 watts,

then you have the 110^th Congress’ House and Senate Democrats and Republican President George Bush to thank for it.  

Title IV aimed to reduce energy use in commercial and industrial buildings.  All of this was, of course, driven by “the existential crisis of climate change”.

Title II dramatically changed the “Renewable Fuel Standard” (RFS), mandating 36 billion gallons of “renewable fuel” (ethanol) in the U.S. motor vehicle fuel supply by the year 2022 (or about 27% of current U.S. annual consumption). While Congress specified 21 billion gallons must be derived from non-cornstarch products (cellulose, sugar or biodiesel), it hasn’t quite worked out that way.  Not even close. Today, 94% of U.S. “renewable fuel” is still ethanol made from corn.

From where we sit, Congress’ mandate for ethanol has been an unmitigated environmental tragedy that didn’t have to happen. Space limitations do not permit a complete examination here, but a few examples will serve to make the point.

Nationally, more than 33% of all U.S. corn production is not used for feeding humans or livestock (to feed humans) but is used instead to produce ethanol. In some states, the percent of the current corn harvest used for ethanol production exceeds 50%. As is evident below, around 2014 almost half of total U.S. corn production was used to make ethanol.

Source: United States Department of Agriculture, Economic Research Service, Feed Grains Yearbook

According to U.S. EPA, the U.S. Grains Council and the University of Illinois Extension, it takes 3 gallons of water to make one gallon of corn ethanol, most of it coming from center pivot irrigation systems connected to groundwater wells. In the western reaches of the U.S. corn belt, the water is mostly coming from rapidly depleting aquifers and ethanol production is making that problem dramatically worse.

Ironically, corn requires enormous inputs of hydrocarbon-based fertilizer and pesticides.  The fertilizer loading from ethanol contributes to loss of soil productivity and to the annual summer hypoxia “dead” zone from nitrogen runoff in the Gulf of Mexico.

Ethanol is harder on internal combustion engines than gasoline, particularly small power equipment. The energy density of corn ethanol is about one-third lower than gasoline (meaning a gallon of gas blended with 10% ethanol contains less useful energy than one without, translating to slightly fewer miles per gallon when burned).  

There are other negative consequences from the current U.S. Renewable Fuels Standard and ethanol.  Much ink has been spilled documenting these consequences. (Hint: We highlight one that has not received the attention it deserves in our next post.)

A Thiel vs. A Green Bull

As the 2008 financial crisis demonstrated, no matter which party is torquing America in which direction, Wall Street can be counted on to take advantage of the situation.  (“Liar loans” encouraged at one end, Collateralized Debt Obligations and Credit Default Swaps at the other). Little chance then that ESG and Sustainability would magically be the exception.

For the last several years, global asset managers, mutual funds and exchange traded funds (ETFs) have cranked up their “sustainability” positioning. It is fair to ask for whom this is a sincere, heart-felt passion to save the planet and for whom it is a penance, a shield, a hedge or insurance. But because it is Wall Street, even for the latter group, it is still an opportunity.

Blackrock is the world’s largest asset manager. Along with Vanguard and State Street, the firm is one of the “Big Three” U.S. fund managers.

Blackrock CEO Larry Fink is a popular punching bag for political ideologues on the left and right. On any given morning, the left protests Blackrock for human rights abuses, funding the military-industrial complex and funding evil fossil fuel companies. By that afternoon, a conservative group protests Blackrock’s involvement in global capitalism, the World Economic Forum cabal, and cheers state Treasurers threating to withdraw pension funds over Blackrock’s ESG activism.

Activist environmental investors and NGO’s have been exposing Blackrock’s environmental hypocrisy and pressuring the firm towards more ESG-related investments for several years. Blackrock has responded to this pressure in a variety of ways, including adding many new ESG-themed fund options.

But, as we previously noted in Part 1 of this post, “looks can be deceiving”. Below are screenshots of (just) two Blackrock ETFs/funds carrying “Sustainable” or “ESG” in their titles with oil and gas companies in the top six holdings:

(ONEOK, Inc., is a natural gas company with almost 26,000 miles of U.S. natural gas pipelines. It also owns natural gas liquid (NGL) storage facilities and product terminals, mostly in the mid-Continent and Rocky Mountain regions.)

Launched in summer 2022, a new Exchange Traded Fund (ETF) backed by Peter Thiel and Bill Ackman called Strive US Energy ETF (symbol DRLL) seeks to challenge the prevailing paradigm of ESG activism and shaming of the oil and gas industry. According to co-founder Vivek Ramaswamy (who announced his candidacy for the 2024 Republican nomination for President earlier this week), DRLL aims to acquire enough shares of major energy companies to “have a say in the boardroom.”  What kind of “say”? According to a Bloomberg article at the time of the launch (emphasis added):

“DRLL joins a small but growing wave of so-called anti-woke ETFs after issuers such as BlackRock Inc. put their heft behind environmental, social and governance-focused funds in recent years. With an expense ratio of 41 basis points, Strive is directly positioning itself against BlackRock’s $2 billion iShares US Energy ETF (IYE), which charges the same fee. However, DRLL’s selling point is that Strive would use its shareholder-voting power to encourage oil and gas (sic) companies to “drill more and frack more,” Ramaswamy said.”

A graph in the article shows the precipitous drop in flows to U.S. ESG-themed ETFs. In 2017 total inflows were ~$1 billion. By 2020 and 2021, inflows into U.S. ESG ETFs exceeded $30 billion. By 2022, those inflows had decreased to ~$4 billion.  

Is the dramatic reduction in inflows merely driven by poor returns? Or is the market reacting to the shine coming off the hype of everything labeled “ESG” and “Sustainability” in the wake of the global energy crisis, energy security priorities and environmental overreach?  Or, is it just Wall Street being Wall Street (chasing returns in fossil fuels)?

He’s Not My Child

Cobalt is a key metal in battery applications for EVs and utility-scale battery storage as well as modern smartphones, tablets and other electronics.  The explosion in electronic devices over the last twenty years has created soaring demand for cobalt, copper, nickel and other metals. As we noted in Part 1, demand for EVs batteries and utility-scale storage is ramping up that demand even more.

The world’s leading producer of cobalt – about 70% of global production - is the Democratic Republic of the Congo (DRC). The environmental and child labor issues associated with cobalt mining in DRC we’ve followed for more than a decade are becoming scarlet letters for the renewables industry and environmentalists.  Whether the metal is cobalt, lithium, nickel, or other key metals required for wind, solar, EVs and battery storage, there is no hiding where the western nations have outsourced their metals mining to in order to achieve their renewable energy plans.  

This is a form of 21^st century Eco-Imperialism™ that the regressive progressive environmental left would prefer to stay hidden in places like the DRC.  On a recent episode of The Joe Rogan Experience, author Siddharth Kara discussed the widespread use of child labor in what are referred to as “artisanal” mines in the DRC.  Kara is the author of a new book titled “Cobalt Red” documenting the disturbing extent of the problem.

As Kara shows, while the term “artisanal” might conjure images of a quaint, small mine worked by a small group of people, the reality is very different. The term “artisanal” is commonly used to soft pedal, if not invert, that reality.  

Kara’s work documents the deaths of Congolese children in mine tunnel collapses.  Graphic images from Kara’s efforts have begun to appear more frequently even in mainstream press. The book made the New York Times Bestseller list in its first week.

This is another example of second and third order consequences of poorly conceived environmental and energy policies by advanced western nations.  Their electorates voted for a domestic green utopia that hasn’t quite worked out as planned. Worse, it is not obvious that voters realized they were simply shifting ugly, old but well-regulated domestic industry overseas (and out of sight) to ugly, new, poorly regulated industry with little to no concern for environmental conditions or human rights.

Sustainability? Or Sustainabilchemy?

Looks can be deceiving. Wholesome-sounding terms like “ESG” and “Sustainability” are easily manipulated to pull the wool over our eyes.  Materiality matters, bad policies have serious consequences, and talk is cheap.

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